The FDA Medical Device User Fee Program

Judith A. Johnson Specialist in Biomedical Policy June 25, 2012 CRS Report for Congress Prepared for Members and Committees of Congress Congressional Research Service 7-5700 www.crs.gov R42508

Summary Update: On June 20, 2012, the House of Representatives passed, by voice vote and under suspension of the rules, S. 3187 (EAH), the Food and Drug Administration Safety and Innovation Act, as amended. This bill would reauthorize the FDA prescription drug and medical device user fee programs (which would otherwise expire on September 30, 2012), create new user fee programs for generic and biosimilar drug approvals, and make other revisions to other FDA drug and device approval processes. It reflects bicameral compromise on earlier versions of the bill (S. 3187 [ES], which passed the Senate on May 24, 2012, and H.R. 5651 [EH], which passed the House on May 30, 2012). The following CRS reports provide overview information on FDA s processes for approval and regulation of drugs: CRS Report R41983, How FDA Approves Drugs and Regulates Their Safety and Effectiveness, by Susan Thaul. CRS Report RL33986, FDA s Authority to Ensure That Drugs Prescribed to Children Are Safe and Effective, by Susan Thaul. CRS Report R42130, FDA Regulation of Medical Devices, by Judith A. Johnson. CRS Report R42508, The FDA Medical Device User Fee Program, by Judith A. Johnson. (Note: The rest of this report has not been updated since April 24, 2012.) The Food and Drug Administration (FDA) is the agency responsible for the regulation of medical devices. These are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. A company must obtain FDA s prior approval or clearance before marketing many medical devices in the United States. The Center for Devices and Radiological Health (CDRH) within FDA is primarily responsible for medical device review and regulation. Congress first gave FDA the authority to collect user fees from medical device companies in the Medical Device User Fee and Modernization Act of 2002 (P.L. 107-250). The purpose of the user fee program is to help reduce the time in which FDA can review and make decisions on marketing applications. Lengthy review times affect the industry, which waits to market its products, and patients, who wait to use these products. The user fee law provides a revenue stream for FDA; in conjunction, the agency negotiates with industry to set performance goals for the premarket review of medical devices. Reauthorization of FDA s medical device user fees last occurred in 2007, just before the FDA s authority would expire, via the Medical Device User Fee Amendments of 2007 (MDUFA II). Current authority will expire on October 1, 2012. On February 1, 2012, FDA announced that it had reached an agreement in principle with the medical device industry on proposed recommendations for the second reauthorization referred to as MDUFA III. A draft MDUFA III package, composed of statutory language and the FDAindustry agreement on performance goals and procedures, was posted on the FDA website on March 14, 2012, and a public meeting describing the draft was held on March 28, 2012. The 30- day comment period on the draft ended April 16, 2012. Following review of the comments, FDA may revise the recommendation and then is to submit the final package to Congress. Congressional Research Service

Since medical device user fees were first collected in FY2003, they have comprised an increasing proportion of FDA s device budget. Medical device user fees have raised a number of concerns, prompting Congress to carefully consider issues such as which agency activities could use fees, how user fees can be kept from supplanting federal funding, and which companies should qualify as a small business and pay a reduced fee. Congress is also considering reauthorization of the Prescription Drug User Fee Act (PDUFA) as well as new proposals for a Generic Drug User Fee Act and a Biosimilars User Fee Act. It is likely that these three will be combined with MDUFA III along with a variety of related and unrelated issues. Because of the importance of user fees to FDA s budget, PDUFA and MDUFA are considered to be must pass legislation, and Congress has often in the past included language to address a range of other concerns. For example, MDUFA II included provisions about the extent to which FDA can delegate activities to third parties, a unique device identification system, and reporting requirements for devices linked to serious injuries or deaths. House and Senate committees are circulating discussion drafts that contain many proposals that would affect medical device regulation. FDA has indicated that some of these pending reforms could conflict with what was negotiated with industry in the MDUFA III proposal. Some reforms are of concern because they would require more agency resources; others were discussed during the user fee negotiations and were set aside. If MDUFA reauthorization does not occur by early summer, federal regulations require that reduction-in-force notices be sent out in July 2012, giving 60 days advance notice to about 250 FDA employees that their employment under the MDUFA program would end September 30, 2012. Congressional Research Service

Contents Introduction... 1 Current Law... 3 FDA Premarket Review of Medical Devices... 3 Medical Device User Fees... 4 Exemptions and Discounted Fees... 5 Use of User Fees... 7 Other MDUFA Requirements... 7 MDUFA Impact on FDA Review Time and Budget... 8 MDUFA III Proposal... 13 Draft Legislative Language... 15 Draft Industry-FDA Performance Goals and Procedures for MDUFA III: The Agreement... 16 Other Potential Issues... 17 Figures Figure 1. Medical Devices Listed with FDA, FY2003-FY2007, by Premarket Review Process... 3 Figure 2. Average Time to Decision: 510(k)s... 9 Figure 3. Average Time to Decision: PMAs and Panel Track Supplements... 11 Figure 4. Devices and Radiological Health Program Budget, by Funding Source, for FY2002 to FY2013... 12 Tables Table 1. FDA Devices and Radiological Health Program, Fees as a Percentage of Total Program Level... 13 Table A-1. Provisions in Section 737 and 738 of the Federal Food, Drug, and Cosmetic Act Relating to Medical Device User Fees... 20 Table A-2. Provisions in Draft MDUFA III Legislative Language That Would Add Two New Sections to Chapter VII of the Federal Food, Drug, and Cosmetic Act... 24 Table B-1. Performance Goals and Procedures in Agreement Between FDA and Industry Representatives for FY2013 through FY2017 Under the Draft MDUFA III... 25 Table C-1. MDUFMA/MDUFA 2007 Fee Schedule, FY2007-FY2012... 30 Table D-1. Summary of Performance Goals per February 7, 2012, Agreement... 31 Appendixes Appendix A. Provisions in FFDCA 737 and 738... 20 Congressional Research Service

Appendix B. MDUFA III Agreement: Performance Goals and Procedures... 25 Appendix C. MDUFMA and MDUFA: Fees and Performance Goals... 30 Appendix D. MDUFA III Performance Goals... 31 Appendix E. Acronyms Used in This Report... 33 Contacts Author Contact Information... 34 Congressional Research Service

Introduction Update: On June 20, 2012, the House of Representatives passed, by voice vote and under suspension of the rules, S. 3187 (EAH), the Food and Drug Administration Safety and Innovation Act, as amended. This bill would reauthorize the FDA prescription drug and medical device user fee programs (which would otherwise expire on September 30, 2012), create new user fee programs for generic and biosimilar drug approvals, and make other revisions to other FDA drug and device approval processes. It reflects bicameral compromise on earlier versions of the bill (S. 3187 [ES], which passed the Senate on May 24, 2012, and HR 5651 [EH], which passed the House on May 30, 2012). The following CRS reports provide overview information on FDA s processes for approval and regulation of drugs: CRS Report R41983, How FDA Approves Drugs and Regulates Their Safety and Effectiveness, by Susan Thaul. CRS Report RL33986, FDA s Authority to Ensure That Drugs Prescribed to Children Are Safe and Effective, by Susan Thaul. CRS Report R42130, FDA Regulation of Medical Devices, by Judith A. Johnson. CRS Report R42508, The FDA Medical Device User Fee Program, by Judith A. Johnson. (Note: The rest of this report has not been updated since April 24, 2012.) In 2002, the Medical Device User Fee and Modernization Act (MDUFMA) gave the Food and Drug Administration (FDA) the authority to collect fees from the medical device industry. 1 User fees and direct appropriations from Congress fund review of medical devices by the FDA. Medical devices are a wide range of products that are used to diagnose, treat, monitor, or prevent a disease or condition in a patient. The Federal Food, Drug and Cosmetic Act (FFDCA) defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including any component, part, or accessory, which is (1) recognized in the official National Formulary, or the United States Pharmacopeia, or any supplement to them, (2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (3) intended to affect the structure or any function of the body of man or other animals, and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of its primary intended purposes. (FFDCA 201(h), 21 U.S.C. 301 201(h)) According to FDA, examples of medical devices range from simple tongue depressors and bedpans to complex programmable pacemakers with micro-chip technology and laser surgical devices. 2 Medical devices also include in vitro diagnostic products, reagents, test kits, and certain electronic radiation-emitting products with medical applications, such as diagnostic ultrasound products, x-ray machines, and medical lasers. Manufacturers must obtain FDA approval or clearance before marketing many medical devices in the United States. The Center for Devices and Radiological Health (CDRH) has primary responsibility within FDA for medical device premarket review. 3 The purpose of user fees is to 1 MDUFMA (P.L. 107-250) added Sections 737 and 738 to the Federal Food, Drug and Cosmetic Act (FFDCA) [21 USC 379i and 379j]. MDUFMA was amended twice by the Medical Device Technical Corrections Act of 2004 (MDTCA; P.L. 108-214) and the Medical Device User Fee Stabilization Act of 2005 (MDUFSA; P.L. 109-43). 2 FDA, Medical Devices, Is the Product a Medical Device, at http://www.fda.gov/medicaldevices/ deviceregulationandguidance/overview/classifyyourdevice/ucm051512.htm. 3 Another center, the Center for Biologics Evaluation and Research (CBER), regulates devices associated with blood (continued...) Congressional Research Service 1

support the FDA s medical device premarket review program and to help reduce the time it takes the agency to review and make decisions on marketing applications. Prior to 2002, multiple government reports, as early as 1983, indicated that FDA had insufficient resources for its medical devices premarket review program. 4 Lengthy review times affect the industry, which waits to market its products, and patients, who wait to use these products. The user fee law provides revenue for FDA; in conjunction, the agency negotiates with industry to set performance goals for the premarket review of medical devices. The medical device user fee program was modeled after the Prescription Drug User Fee Act (PDUFA). 5 Like the prescription drug and animal drug user fee programs, the medical device user fee program has been authorized in five-year increments. 6 FDA s medical device user fee authorities were reauthorized just before their expiration by the Medical Device User Fee Amendments of 2007 (MDUFA). 7 The agency s current authority to collect medical device user fees will expire on October 1, 2012. On February 1, 2012, FDA announced that it had reached an agreement in principle with the medical device industry on proposed recommendations for the reauthorization of the medical device user fee program. 8 Referred to as MDUFA III, a draft of the negotiated package composed of statutory language and the FDA-industry agreement on performance goals and procedures was posted on the FDA website on March 14, 2012. 9 A public meeting describing the draft was held on March 28, 2012. The 30-day comment period on the draft ended April 16, (...continued) collection and processing procedures, cellular products, and tissues. For more information, see CRS Report R42130, FDA Regulation of Medical Devices, by Judith A. Johnson. 4 These reports are listed in Institute of Medicine (IOM), Medical Devices and the Public s Health: The FDA 510(k) Clearance Process at 35 Years, Washington, DC, July 2011, p. 30, http://www.iom.edu/reports/2011/medical- Devices-and-the-Publics-Health-The-FDA-510k-Clearance-Process-at-35-Years.aspx. 5 PDUFA came about following negotiations among the FDA (under Commissioner David Kessler), the drug industry, and key congressional committee Members and staff. The aim of the negotiations was getting enough qualified doctors onto the FDA staff to carry out drug reviews, and getting the company staffs to cooperate in meeting higher standards. The solution that emerged was one intended to bypass the anachronistic and unreliable congressional system that always underfinanced the FDA. Phillip J. Hilts, Protecting America s Health (New York: Alfred A. Knopf, 2003), p. 278. Other key features of PDUFA include ensuring that the user fee revenue would not go to general funds but could be spent only on the drug review program, a sunset provision ensuring the user fee program would be reevaluated every five years, and an implicit contract by Congress not to exploit the availability of the user fee monies and then reduce FDA appropriations for drug review-related purposes. Daniel Carpenter, Reputation and Power: Organizational Image and Pharmaceutical Regulation at the FDA (Princeton, NJ: Princeton University Press, 2010), pp. 459-460. 6 See CRS Report R42366, Prescription Drug User Fee Act (PDUFA): Issues for Reauthorization (PDUFA V) in 2012, by Susan Thaul, and CRS Report RL34459, Animal Drug User Fee Programs, by Sarah A. Lister. 7 MDUFA was enacted as Title II of the Food and Drug Administration Amendments Act of 2007 (FDAAA; P.L. 110-85). See CRS Report RL34465, FDA Amendments Act of 2007 (P.L. 110-85), by Erin D. Williams and Susan Thaul. 8 Food and Drug Administration, FDA and Industry reach agreement in principle on medical device user fees, press release, February 1, 2012, http://www.fda.gov/newsevents/newsroom/pressannouncements/ucm289828.htm. FDA and industry missed the January 15, 2012, statutory deadline for transmitting the MDUFA III package to Congress, delaying the reauthorization process and possibly jeopardizing completion before the medical device user fee program sunsets on September 30, 2012. 9 FDA, Draft MDUFA III Commitment Letter, dated February 17, 2012, and posted on FDA website March 14, 2012, at http://www.fda.gov/downloads/medicaldevices/newsevents/workshopsconferences/ucm295454.pdf. Document is referred to, at times, as the Commitment Letter or the Agreement. FDA, draft statutory language dated February 17, 2012, and posted at http://www.fda.gov/downloads/medicaldevices/newsevents/workshopsconferences/ UCM295424.pdf. Congressional Research Service 2

2012. Following review of the comments, FDA may revise the recommendation and then is to submit the final package to Congress. This report describes current law regarding medical device user fees, the impact of MDUFA on FDA review time of various medical device applications and the agency s medical device program budget, the MDUFA III proposal (legislative language and performance goals agreement), and issues that Congress is likely to take up as it works on the reauthorization of the medical device user fee program. Appendix E provides a list of acronyms used in this report. Current Law The Medical Device Amendments of 1976 (P.L. 94-295) was the first major legislation passed to address the premarket review of medical devices. User fees to support the FDA s medical device premarket review program were first authorized by Congress in 2002, 10 years after Congress had provided the authority for prescription drug user fees via PDUFA. For prescription drugs, the manufacturer must pay a fee for each new drug application (NDA) that is submitted to FDA for premarket review. In contrast, most medical devices are exempt from premarket review and do not pay a user fee. Premarket review and payment of the associated fee is required for about a third of the medical devices listed with FDA (see Figure 1). Figure 1. Medical Devices Listed with FDA, FY2003-FY2007, by Premarket Review Process Source: Government Accountability Office, January 2009, GAO-09-190, p. 9. Notes: Other includes devices that were allowed to enter the market via other means, such as through the humanitarian device exemption process that allows market entry, without adherence to certain requirements, for devices benefiting patients with rare diseases or conditions. See Exemptions and Discounted Fees. Nonexempt devices are reviewed by FDA via the PMA (premarket approval) process or the 510(k) notification. See FDA Premarket Review of Medical Devices. FDA Premarket Review of Medical Devices FDA classifies devices based on the risk to the patient: low-risk devices are Class I, medium-risk are Class II, and high-risk are Class III. Low-risk medical devices (Class I) and a very small Congressional Research Service 3

number of moderate-risk (Class II) medical devices are exempt from premarket review. In general, for moderate-risk and high-risk medical devices, there are two pathways that manufacturers can use to bring such devices to market with FDA s permission. 10 One pathway consists of conducting clinical studies, then submitting a premarket approval (PMA) application with evidence providing reasonable assurance that the device is safe and effective. The PMA process is generally used for novel and high-risk devices and is typically lengthy and expensive. It results in a type of FDA permission called approval. Another pathway involves submitting a premarket notification submission also known as a 510(k), after the section in the FFDCA that authorized this type of notification. With the 510(k), the manufacturer demonstrates that the device is substantially equivalent to a device already on the market (a predicate device) that does not require a PMA. The 510(k) process is unique to medical devices and results in FDA clearance. Substantial equivalence is determined by comparing the performance characteristics of a new device with those of a predicate device. Medical Device User Fees Premarket review by FDA both PMA and 510(k) requires the payment of a user fee. FDA typically evaluates more than 4,000 510(k) notifications and about 40 original PMA applications each year. 11 Since MDUFA II reauthorization in 2007, FDA cleared over 13,000 510(k) devices and approved 106 PMAs. 12 According to CDRH Director Jeffrey Shuren, for FY2010, user fees collected under MDUFA fund only about 20% of the device review program ; in contrast, user fees collected under the PDUFA account for over 60% of the drug review program s budget. 13 There are also fees for when a manufacturer requests approval of a significant change in the design or performance of a device approved via the PMA pathway. 14 This is called a Panel-Track Supplement when it is necessary for FDA to evaluate significant clinical data in order to make a decision on approval of the supplement. If a manufacturer requests approval of a change in aspects of an approved device, such as its design, specifications, or labeling, this is called a 180- Day PMA Supplement. In this case, FDA either does not require new clinical data or requires only limited clinical data. When a manufacturer requests approval for a minor change to an approved device, such as a minor change in the design or labeling, this is called a Real-Time PMA Supplement. With a Premarket Report, a manufacturer requests the approval of a high-risk 10 Novel devices lacking a legally marketed predicate are automatically designated Class III. FFDCA Section 513(f) established an expedited mechanism for reclassifying these devices based on risk, reducing the regulatory burden on manufacturers. The de novo 510(k), though requiring more data than a traditional 510(k), often requires less information than a PMA application. For more information on device classification and the FDA review process, see CRS Report R42130, FDA Regulation of Medical Devices, by Judith A. Johnson. 11 U.S. Congress, Senate Special Committee on Aging, A Delicate Balance: FDA and the Reform of the Medical Device Approval Process, Testimony of William Maisel, Deputy Center Director for Science, FDA/CDRH, 112 th Cong., 1 st sess., April 13, 2011. 12 U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Health, Reauthorization of MDUFA: What it means for jobs, innovation and patients, Statement of Jeffrey Shuren, CDRH Director, FDA, 112 th Cong., 2 nd sess., February 15, 2012; and U.S. Congress, Senate Committee on Health, Education, Labor and Pensions, FDA User Fee Agreements, Statement of Jeffrey Shuren, CDRH Director, FDA, 112 th Cong., 2 nd sess., March 29, 2012. 13 Ibid. 14 FFDCA 738(a)(2)(A). Congressional Research Service 4

device, originally approved for single use (one patient, one procedure), for reprocessing to allow additional use. The original 2002 user fee law had only authorized FDA to collect fees for premarket review, such as for PMA applications or 510(k) notifications. The 2007 reauthorization MDUFA II added two new types of annual fees in order to generate a more stable revenue stream for the agency. According to FDA, there were fluctuations in the numbers submitted from year to year, and fee revenues repeatedly fell short of expectations. 15 MDUFA II added establishment fees, paid annually by most device establishments registered with FDA, and product fees, paid annually for high-risk (Class III) devices for which periodic reporting is required. The annual fees were projected to generate about 50% of the total device fee revenue from FY2008 to FY2012. 16 MDUFA II also added two new application fees, the 30-Day Notice and 513(g) application, and substantially lowered all the existing application fee amounts (see Table C-1). A manufacturer uses a 30-Day Notice when requesting to make modifications to manufacturing procedures or methods of manufacture affecting the safety and effectiveness of the device, and a manufacturer requests information on the classification of a device with a 513(g) application. 17 Other than the establishment fee, the amount of each type of user fee is set as a percentage of the PMA fee, also called the base fee. The law prescribes both the base fee amount for each fiscal year, and the percentage of the base fee that constitutes most other fees. For example, the 510(k) fee is equal to 1.84% of the PMA fee. MDUFA II raised the PMA fee by 8.5% per year from FY2008 to FY2012 18 (see Table C-1). FDA asserted that this annual increase would ensure that fee revenues contribute their expected share to total program costs, and would provide industry with stability and predictability in the fee revenues it would expect to pay. 19 The amount of the establishment fee (also known as the establishment registration fee) was authorized under MDUFA II to rise 8.5% per year from FY2008 to FY2012 20 (see Table C-1). Exemptions and Discounted Fees Certain types of medical devices, sponsors of medical device PMA applications or 510(k) notifications, and medical device manufacturers are exempt from paying fees, and small businesses pay a reduced rate. 21 Humanitarian Device Exemption (HDE) applications are exempt from user fees, other than establishment fees. 22 An HDE exempts devices that meet certain 15 FDA, Medical Device User Fee and Modernization Act; Public Meeting, 72 Federal Register 19528, April 18, 2007. 16 FDA, Medical Device User Fee and Modernization Act; Public Meeting, 72 Federal Register 19528, April 18, 2007. 17 FFDCA 738(a)(2)(A) 18 FFDCA 738(b). 19 FDA, Medical Device User Fee and Modernization Act; Public Meeting, 72 Federal Register 19528, April 18, 2007. Under MDUFMA, base fees increased by 34% from FY2003 to FY2004, by 15.7% from FY2004 to FY2005, and by 8.5% from FY2005 to FY2006 and FY2006 to FY2007. 20 The HHS Secretary had the authority to increase the establishment fee by up to an additional 8.5% (over the annual 8.5% increase) in FY2010 if fewer than 12,250 establishments paid the fee in FY2009. This measure was designed to ensure that the establishment fees were 45% of total fees, ensuring that FDA had a stable funding base from user fees. 21 FFDCA 738(a)(2)(B); 21 USC 379j(a)(2)(b). 22 FFDCA 738(a)(2)(B)(i). HDE is intended to encourage the development of devices that aid in the treatment and diagnosis of diseases or conditions that affect fewer than 4,000 individuals in the United States per year. FFDCA 520(m); 21 USC 360j(m). The research and development costs of such devices could exceed the market returns for (continued...) Congressional Research Service 5

criteria from the effectiveness requirements of premarket approval. Devices intended solely for pediatric use are exempt from fees other than establishment fees. 23 If an applicant obtains an exemption under this provision, and later submits a supplement for adult use, that supplement is subject to the fee then in effect for an original PMA. State and federal government entities are exempt from fees for a PMA, premarket report, supplement, 510(k), and establishment registration unless the device is to be distributed commercially. Indian tribes are exempted from having to pay establishment registration fees, unless the device is to be distributed commercially. Other than an establishment fee, the FDA cannot charge a fee for premarket applications for biologics licenses and licenses for biosimilar or interchangeable products if products are licensed exclusively for further manufacturing use. 24 Under a program authorized by Congress, FDA accredits third parties, allowing them to conduct the initial review of 510(k)s for the purpose of classification of certain devices. 25 The purpose is to improve the efficiency and timeliness of FDA s 510(k) process. No FDA fee is assessed for 510(k) submissions reviewed by accredited third parties, although the third parties charge manufacturers a fee for their services. 26 In MDUFA II, Congress amended the process of qualifying for small business user fee discounts in response to frustrations expressed by domestic and foreign companies that had difficulties with the requirements. Small businesses those with gross receipts below a certain amount pay reduced user fees and have some fees waived altogether. 27 These fee reductions and exemptions are important, because many device companies are small businesses. 28 Under current law, whether a device company is considered a small business eligible for fee reductions or waivers depends on the particular fee. Small businesses reporting under $30 million in gross receipts or sales are exempt from fees for their first PMA. Proof of receipts may consist of IRS tax documents or qualifying documentation from a foreign government. Companies with annual gross sales or receipts of $100 million or less pay at a rate of 50% of the 510(k) user fee, 30-day notice, request for classification information, and 25% of most other user fees. 29 Small businesses must pay the full amount of the establishment fees. 2007 GAO Study A March 2007 Government Accountability Office (GAO) report analyzed company revenue information for 50% of the 4,500 device applications subject to user fees that were submitted in FY2006. The remaining 50% of applications were likely submitted by private companies that did not qualify as small businesses, and GAO was unable to identify the number of these companies. For the companies that GAO was able to analyze, the report found that 95% of the 697 companies qualifying as small businesses in FY2006 had revenues below $30 million. Of these 697 (...continued) products that address diseases or conditions affecting small patient populations. 23 FFDCA 738(a)(2)(B)(v) 24 FFDCA 738(a)(2)(B)(ii); FFDCA 738(a)(3)(A) 25 FFDCA 523. 26 FFDCA 738(a)(2)(B)(iv). 27 FFDCA 738(d),(e); 21 USC 379j(d),(e). 28 FDA, Medical Device User Fee and Modernization Act; Public Meeting, 72 Federal Register 19528, April 18, 2007. 29 FFCCA 738(d); 21 USC 379j(d). Congressional Research Service 6

companies, two-thirds submitted at least one device application subject to user fees during that year. These companies were responsible for about 20% of the approximately 4,500 device applications subject to user fees that were submitted to FDA in FY2006. GAO also analyzed the annual revenue for 258 publicly traded companies that submitted applications subject to user fees and did not qualify as small businesses in FY2006. Of these 258 companies, 155 (60%) had annual revenue higher than $500 million, 47 companies were above $100 million but at or below $500 million, and 56 companies were at or below the $100 million threshold for small business qualification. GAO did not determine why these companies were not qualified as small businesses. These 258 publicly traded companies were responsible for about 30% of the approximately 4,500 applications subject to user fees submitted to FDA in FY2006. Source: GAO, Food and Drug Administration: Revenue Information on Certain Companies Participating in the Medical Device User Fee Program, GAO-07-571R (March 30, 2007), at http://www.gao.gov/assets/100/94743.pdf. Use of User Fees A key element of FDA user fee laws both MDUFA and PDUFA is that the user fees are to supplement congressional appropriations, not replace them. The law includes complex formulas, called triggers, to enforce that goal. FDA may collect and use MDUFA fees only if the direct appropriations for the activities involved in the premarket review of medical devices and for FDA activities overall remain at a level at least equal (adjusted for inflation) to the pre-mdufa budget. 30 Other MDUFA Requirements Over time, Congress has changed PDUFA to allow user fee revenue to be used for not only FDA activities related to premarket review but also the review of postmarket safety information associated with a drug. In contrast, MDUFA revenue can be used only for activities associated with FDA review of PMAs, 510(k)s, supplements, and reports. The law states that fees shall only be collected and available to defray increases in the costs of resources allocated for the process for the review of device applications. 31 MDUFA II added a new Section 738A regarding required reports and outlining the reauthorization process. This section required the Secretary to submit annual fiscal and performance reports for FY2008 through FY2012 to the Senate Committee on Health, Education, Labor, and Pensions, and the House Committee on Energy and Commerce. Fiscal reports address the implementation of FDA s authority to collect medical device user fees, as well as FDA s use of the fees. Performance reports address FDA s progress toward and future plans for achieving the fee-related performance goals identified in the agreement. The new section also directed the FDA to develop a reauthorization proposal for FY2013 through FY2017 in consultation with specified congressional committees, scientific and academic experts, 30 FFDCA 738(g). 31 Emphasis added. FFDCA 738(h)(2)(A)(ii). The law specifically defines costs of resources allocated for the process for the review of device applications and what activities are considered part of the process for the review of device applications. For example, costs include management of information and activities associated with the process for review include inspections of manufacturing establishments. [Emphasis added. FFDCA 737(8)-(9).] The process for review of device applications focuses solely on activities involved in premarket approval, with one exception: the evaluation of postmarket studies that are required as a condition of approval of certain premarket applications or reports. [FFDCA 737(8)(J).] Congressional Research Service 7

health care professionals, patient and consumer advocacy groups, and the regulated industry. 32 Prior to negotiations with industry, FDA was required to request public input, hold a public meeting, and publish public comments on the agency s website. During negotiations with industry, FDA was mandated to hold monthly discussions with patient and consumer advocacy groups to receive their suggestions and discuss their views on the reauthorization. After negotiations with industry were completed, FDA was required to present the recommendations to certain congressional committees, publish the recommendations in the Federal Register, provide a 30-day public comment period, hold another public meeting to receive views from stakeholders, and revise the recommendations as necessary. As explained earlier, the FDA missed the new statutory deadline that required the transmittal of the revised recommendations to Congress not later than January 15, 2012. 33 Minutes of all negotiation meetings between FDA and industry were required to be posted on the FDA website. MDUFA Impact on FDA Review Time and Budget The amount of time it takes FDA to reach a review decision to clear a 510(k) notification or approve a PMA application are measures of how well the agency is meeting the goals defined in the MDUFA agreement between FDA and the medical device industry. The time it takes to review a medical device total review time is composed of the time FDA handles the application FDA time plus the amount of time the device sponsor or submitter requires to respond to requests by FDA for additional information about the device. According to CDRH Director Shuren, FDA has been meeting or exceeding goals agreed to by FDA and industry under MDUFA II for approximately 95% of the submissions we review each year. For example, FDA completes at least 90% of 510(k) reviews within or less. 34 However, Dr. Shuren noted that these metrics reflect FDA time only; they do not reflect the time taken by device sponsors to respond to requests for additional information. Overall time to decision the time that FDA has the application, plus the time the manufacturer spends answering any questions FDA may have has increased steadily since 2001. 35 Figure 2 shows that while the amount of time FDA spends reviewing a 510(k) has decreased, the average total days for the review of 510(k)s has been increasing. FDA and GAO have both studied this issue of increasing review time. A 2011 FDA analysis of the reasons behind the increased average total days for the review of 510(k)s found that FDA reviewers needed to ask for additional information called an AI Letter from the 510(k) device manufacturer or sponsor due to the poor quality of the original submission. 36 According to FDA, these quality issues involved the device description, meaning the sponsor either did not provide sufficient 32 FFDCA 738A(b) 33 FFDCA 738A(b)(5). 34 U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Health, Reauthorization of MDUFA: What it means for jobs, innovation and patients, Statement of Jeffrey Shuren, CDRH Director, FDA, 112 th Cong., 2 nd sess., February 15, 2012; and, U.S. Congress, Senate Committee on Health, Education, Labor and Pensions, FDA User Fee Agreements, Statement of Jeffrey Shuren, CDRH Director, FDA, 112 th Cong., 2 nd sess., March 29, 2012. 35 Ibid. 36 FDA/CDRH, Analysis of Premarket Review Times Under the 510(k) Program, July 2011, at http://www.fda.gov/ downloads/aboutfda/centersoffices/officeofmedicalproductsandtobacco/cdrh/cdrhreports/ucm263386.pdf. Congressional Research Service 8

information about the device to determine what it was developed to do, or the device description was inconsistent throughout the submission. 37 Figure 2. Average Time to Decision: 510(k)s Fiscal Year Receipt Cohorts as of March 11, 2012 Source: Figure in testimony of CDRH Director Jeffrey Shuren before the Senate HELP Committee, March 29, 2012. Notes: FDA Days + Submitter Days = Total Time to Decision; times may not add due to rounding. A cohort consists of all 510(k) submissions filed in the same fiscal year. FY2008 through FY2011 cohorts are still open; FY2011 cohort is only 85% closed, and average times will increase. Furthermore, FDA concluded that sponsors failure to address deficiencies identified in firstround AI Letters are major contributors to the increase in total review times. For example, 65% of the time FDA sent a second-round AI Letter because the sponsor failed to submit information requested in the first AI Letter. 38 The 2011 FDA analysis also found in some cases, the FDA sent AI Letters for inappropriate reasons, such as asking for additional testing that was outside the scope of what would be required for a 510(k) submission, or asking for supporting documentation that was already covered by a standard government form. 39 37 Ibid., p. 3. Page 15 of the 2011 FDA/CDRH 510(k) report provides more detail on these deficiencies: (i) the sponsor did not submit required information without justification such information includes supporting data required under current guidance or performance data that FDA consistently requires for certain device types; (ii) the sponsor failed to identify a predicate; or (iii) the sponsor employed different device descriptions or indications for use for the subject device throughout its submission. In all of these cases, FDA could not reach a substantial equivalence determination without the sponsor providing additional information or rectifying deficiencies in the submission. 38 Ibid., p. 15. 39 Ibid., p. 7. Two separate analyses of AI Letters were conducted: one to assess incoming submission quality (Cohort 1) and one to assess the drivers of the increasing numbers of review cycles (Cohort 2). On page 3 of the July 2011 Analysis of Premarket Review Times Under the 510(k) Program report, FDA states that it analyzed AI letters to determine how often the questions that were asked were appropriate or inappropriate, i.e. were the AI Letters justified or did the reviewer ask for information or data that were not permissible as a matter of federal law or FDA policy, or unnecessary to make an SE [substantially equivalent] determination. Results from Cohort 1 showed that reviewers asked for data that had not previously been requested for particular device types 12% of the time. Of those requests, 4% were appropriate, and 8% were inappropriate. Results of the first-round AI Letters from Cohort 2 showed that reviewers asked for appropriate data that had not previously been requested for particular device types 4% of the time, (continued...) Congressional Research Service 9

GAO also performed an analysis of FDA performance goals regarding 510(k) device review times and requests for additional information from sponsors. 40 GAO found that although FDA met all medical device performance goals for 510(k)s, the total review time from submission to final decision has increased substantially in recent years. Regarding the agency s use of AI Letters, the GAO report notes that the only alternative to requesting additional information is for FDA to reject the submission. 41 Use of the AI Letter allows the sponsors the opportunity to respond, and although the time to final decision is longer, the application has the opportunity to be approved. Figure 3 provides information on the amount of time FDA spends reviewing non-expedited PMA applications and Panel-Track Supplements. A device may receive expedited review if it is intended to treat or diagnose a life-threatening condition or irreversibly debilitating disease or condition, and it addresses an unmet need. 42 CDRH Director Shuren notes that although FDA is spending less time reviewing PMA applications, the average total days for the review of PMA applications has been increasing since 2004. 43 The February 2012 GAO report found that for FY2003 through FY2010, FDA met most of the goals for PMAs but fell short on most of the goals for expedited PMAs. 44 The February 2012 GAO report found that FDA review time and time to final decision for both types of PMAs were highly variable but generally increased during this period. 45 (...continued) and 2% of the time those requests were inappropriate. 40 U.S. Government Accountability Office, Medical Devices: FDA Has Met Most Performance Goals but Device Reviews Are Taking Longer, GAO-12-418, February 2012, http://www.gao.gov/products/gao-12-418. 41 Ibid., p. 16. 42 FDA Guidance, Expedited Review of Premarket Submissions for Devices, February 29, 2008, p. 3, at http://www.fda.gov/downloads/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm089698.pdf. 43 U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Health, Reauthorization of MDUFA: What it means for jobs, innovation and patients, Statement of Jeffrey Shuren, CDRH Director, FDA, 112 th Cong., 2 nd sess., February 15, 2012; and, Senate Committee on Health, Education, Labor and Pensions, FDA User Fee Agreements, Statement of Jeffrey Shuren, CDRH Director, FDA, 112 th Cong., 2 nd sess., March 29, 2012. 44 Ibid., p. 20. 45 U.S. Government Accountability Office, Medical Devices: FDA Has Met Most Performance Goals but Device Reviews Are Taking Longer, GAO-12-418, February 2012, p. 20, http://www.gao.gov/products/gao-12-418. Congressional Research Service 10

Figure 3. Average Time to Decision: PMAs and Panel Track Supplements (Non-expedited) Source: Figure in testimony of CDRH Director Jeffrey Shuren before the Senate HELP Committee, March 29, 2012. Notes: FDA Days + Submitter Days = Total Time to Decision; times may not add due to rounding. Data is for non-expedited PMAs and Panel-Track Supplements. Some fiscal year cohorts are still open data may change. A cohort consists of all submissions of a certain type, in this case PMA, filed in the same fiscal year. For FY2010, as of January 30, 2012, there were four applications without a decision; the average time to decision will increase as the cohort closes. The February 2012 GAO report also commented on communication problems between industry and FDA based on interviews with three industry groups about the medical device review process. These industry representatives noted that FDA guidance documents are often unclear, out of date, and not comprehensive. 46 They also stated that after sponsors submit their applications to FDA, insufficient communication from FDA prevents sponsors from learning about deficiencies in their submissions early in FDA s review. According to one of these stakeholders, if FDA communicated these deficiencies earlier in the process, sponsors would be able to correct them and would be less likely to receive a request for additional information. 47 Two industry representatives noted that review criteria sometimes change after a sponsor submits an application, and one industry representative stated that criteria sometimes change when the FDA reviewer assigned to the submission changes during the review. 48 The February 2012 GAO report points out that FDA has taken a number of actions to address the issues of the industry representative. For example, FDA has issued new guidance documents, improved the guidance development process, initiated a reviewer certification program for new FDA reviewers, and enhanced its interactive review process for medical devices. For FY2012, 36% of FDA s total budget comes from user fees. 49 Medical device user fee revenue provides about 10% of the FDA medical device and radiological health program budget. 50 Figure 46 Ibid., p. 34. 47 Ibid. 48 Ibid., p. 35. 49 In addition to medical device user fees, Congress has authorized user fees for prescription drugs, animal drugs, animal generic drugs, tobacco products, mammography, color and export certification, and, most recently, several foodrelated programs. Congressional Research Service 11

4 presents the total program level for FDA s device and radiological health program for FY2002 through FY2013 with dollars adjusted for inflation (based on 2005 dollars). Figure 4 also shows the contribution of medical device user fees, which began in FY2003, to the device and radiological health program budget, as well as fees collected for the inspection of mammography facilities under the Mammography Quality Standards Act (MQSA), which began fee collection in FY1996. For FY2010, user fees collected under MDUFA funded about 20% of the device review program, while user fees collected under PDUFA funded over 60% of the drug review program. Figure 4. Devices and Radiological Health Program Budget, by Funding Source, for FY2002 to FY2013 (Adjusted to 2005 dollars) Source: FDA Justification of Estimates for Appropriations Committees documents, FY2004 through FY2013. *Only total user fees were available for FY2004; amounts for medical device user fees and MQSA fees were not identified in the FY2006 Justification of Estimates for Appropriations Committees. See Table 1. Notes: Total Program Level = Budget Authority + Medical Device User Fees + MQSA Fees. Data have been adjusted to constant 2005 dollars using Total Non-Defense deflators from Office of Management and Budget, Fiscal Year 2013 Historical Tables, Budget of the U.S. Government, Table 10.1, Gross Domestic Product and Deflators Used in the Historical Tables: 1940-2017, pp. 211-212. User fees are an increasing proportion of FDA s device-related budget, as shown in Table 1. User fees were 7.1% of FDA s devices and radiological health program level budget in FY2002 when MQSA was the sole user fee, and 14.2% of FDA s devices and radiological health program level budget in FY2012, with both MQSA and medical device user fees being collected by the agency. Table 1 shows that over the period of FY2003 to FY2012, the amount of user fees more than doubled, while the amount of direct appropriations (budget authority) increased at a slower rate. (...continued) 50 Of the $57.6 million in medical device user fees for FY2012, 60% goes to the devices and radiological health program (funding 221 full-time equivalent employees [FTEs]), 20% to the biologics program (29 FTEs), and the remaining 20% to rent and FDA headquarters (21 FTEs). Data from Department of Health and Human Services (HHS), Fiscal Year 2013 Food and Drug Administration: Justification of Estimates for Appropriations Committees, February 2012, p. 94. Congressional Research Service 12

Table 1. FDA Devices and Radiological Health Program, Fees as a Percentage of Total Program Level (Unadjusted dollars in millions) Fiscal Year Budget Authority MDUFA a Fees MQSA b and Other Fees c Total Fees Total Fees as % of Total Program Level Total Program Level 2002 $180.0 $0 $13.7 $13.7 7.1% $193.7 2003 $193.4 $11.1 $12.9 $24.0 11.0% $217.3 2004 d $191.1 na na $30.4 13.7% $221.5 2005 $215.0 $16.4 $13.0 $29.3 12.0% $244.3 2006 $220.6 $20.7 $13.8 $34.5 13.5% $255.0 2007 $230.7 $23.3 $13.6 $36.9 13.8% $267.5 2008 $237.7 $24.3 $13.3 $37.6 13.7% $275.3 2009 $298.5 $33.3 $13.5 $46.8 13.6% $345.3 2010 $313.5 $42.7 $13.8 $56.5 15.3% $370.0 2011 $322.2 $42.0 $14.4 $56.3 14.9% $378.5 2012 $322.7 $34.2 $19.1 $53.3 14.2% $376.0 2013 $319.1 $41.4 $26.3 $67.6 17.5% $386.8 Source: FDA Justification of Estimates for Appropriations Committees documents, FY2004 through FY2013, a. MDUFA is Medical Device User Fee Act. b. MQSA is Mammography Quality Standards Act. c. For FY2013, the Obama Administration proposes a new Field Reinspection fee and a new International Courier User Fee. d. The FY2006 Justification organized data, including Actual data for FY2004, in a format different than other Justification documents (it included rent but did not include the Office of Regulatory Affairs). The FY2007 and FY2008 Justification documents provided data in consistent format (without rent but included ORA) for FY2004 Budget Authority, Total Fees, and Total Program Level, but did not provide medical device user fees or MQSA amounts. The FY2006 Justification provided the following amounts for Actual FY2004 user fees: medical device user fees, $18.245 million; MQSA, $4.039 million; ORA user fees, $9.071 million. MDUFA III Proposal An initial public meeting on the reauthorization of the medical device user fees was held by FDA on September 14, 2010, after which the negotiation process between FDA and industry began, as well as monthly meetings with other stakeholders. 51 Minutes of the 35 negotiation meetings between FDA and the medical device industry are posted on the agency s website, as are minutes 51 FDA, Public Workshop: Medical Device User Fee Program Public Meeting, September 14, 2010, at http://www.fda.gov/medicaldevices/newsevents/workshopsconferences/ucm218250.htm. Congressional Research Service 13

of the 14 monthly meetings with the other stakeholders, such as health care professional associations and patient and consumer advocacy groups. 52 On February 1, 2012, FDA announced that it had reached an agreement in principle on proposed recommendations for the third reauthorization of a medical device user fee program. 53 According to a press release on the FDA website, the recommendations would authorize $595 million in user fees collected by the agency from the medical device industry over a five-year period. 54 FDA would be able to hire more than 200 full-time-equivalent workers with this additional funding. In the minutes for the January 31, 2012, negotiation meeting, industry noted that MDUFA III represents a sizeable increase of 240 FTEs from current levels, FDA should not expect this type of significant resource increase under MDUFA IV. 55 In response, the agency stated that it had some concerns about how solid a financial footing this agreement establishes, given that there are a lot of uncertainties about how much effort will be required to meet the goals, and that in order to bring the proposal to a level that Industry could agree to, FDA had to take away any margin of error. 56 On March 14, 2012, the agency posted on its website the draft negotiated package composed of statutory language and the FDA-industry agreement on performance goals and procedures referred to as MDUFA III. 57 A public meeting describing the draft was held on March 28, 2012. The 30-day comment period on the draft ended April 16, 2012. Following review of the comments, FDA may revise the recommendation and then is to submit the final package to Congress. Update: On June 20, 2012, the House of Representatives passed, by voice vote and under suspension of the rules, S. 3187 (EAH), the Food and Drug Administration Safety and Innovation Act, as amended. This bill would reauthorize the FDA prescription drug and medical device user fee programs (which would otherwise expire on September 30, 2012), create new user fee programs for generic and biosimilar drug approvals, and make other revisions to other FDA drug and device approval processes. It reflects bicameral compromise on earlier versions of the bill (S. 3187 [ES], which passed the Senate on May 24, 2012, and HR 5651 [EH], which passed the House on May 30, 2012). The following CRS reports provide overview information on FDA s processes for approval and regulation of drugs: CRS Report R41983, How FDA Approves Drugs and Regulates Their Safety and Effectiveness, by Susan Thaul. CRS Report RL33986, FDA s Authority to Ensure That Drugs Prescribed to Children Are Safe and Effective, by Susan Thaul. CRS Report R42130, FDA Regulation of Medical Devices, by Judith A. Johnson. 52 FDA, Medical Devices, MDUFA Meetings at http://www.fda.gov/medicaldevices/deviceregulationandguidance/ Overview/MedicalDeviceUserFeeandModernizationActMDUFMA/ucm236902.htm. 53 Food and Drug Administration, FDA and Industry reach agreement in principle on medical device user fees, press release, February 1, 2012, http://www.fda.gov/newsevents/newsroom/pressannouncements/ucm289828.htm. 54 Ibid. 55 FDA, Minutes From Negotiation Meeting on MDUFA III Reauthorization, January 31, 2012, at http://www.fda.gov/ MedicalDevices/DeviceRegulationandGuidance/Overview/MedicalDeviceUserFeeandModernizationActMDUFMA/ ucm289824.htm. 56 Ibid. 57 FDA, draft statutory language dated February 17, 2012, and posted at http://www.fda.gov/downloads/ MedicalDevices/NewsEvents/WorkshopsConferences/UCM295424.pdf. FDA, Draft MDUFA III Commitment Letter, dated February 17, 2012, and posted on FDA website March 14, 2012, at http://www.fda.gov/downloads/ MedicalDevices/NewsEvents/WorkshopsConferences/UCM295454.pdf. Document is referred to, at times, as the Commitment Letter or the Agreement. Congressional Research Service 14